How to Make the Most of a Small Firm

Anita Dennis is a Journal contributing editor.

EXECUTIVE SUMMARY

• TWO PROBLEMS FOR SOLE PRACTITIONERS are the limits on time and expertise inherent in a small operation. CPA Allyson Turner has solved this problem by constructing alliances with other practitioners and with professionals in other fields.
• FOR A LOCAL BANK, Turner works with a former partner to provide a unique alternative to an in-house tax department. She also has constructed a network of CPAs who can call on each other for practice management and technical advice.
• STRATEGIC ALLIANCES WITH OTHER PROFESSIONALS help her fulfill client needs. Turner refers clients exclusively to a few experts in tax law and financial planning. She presents herself to clients as part of a multifaceted team and remains engaged in all parts of the referral engagements.

Two serious problems for sole practitioners are the limits on time and expertise that are inherent in a small operation. Texas CPA Allyson Turner has found a way to solve this problem by constructing alliances with other practitioners and with professionals in other fields. The arrangements enable her to take on a greater variety of clients and to offer her clientele more services than usually are available from a local firm.

WORKING WITH A FORMER PARTNER
Turner opened a two-partner firm with CPA Kerry Balthrop in 1989, but Balthrop later decided to relocate, so the partners split in 1994. “The Dallas/Fort Worth metroplex, where we are located, is very large, and Kerry wanted to move her practice closer to her home,” Turner says, although she remained close enough to take on cooperative ventures with Turner. For example, one of Turner’s largest clients is the trust division of a large local bank. The bank doesn’t have an in-house tax division, so Turner and Balthrop, who once shared the client as partners, continue to consult with the bank on tax issues, prepare some tax returns and review all of the other returns for which the bank has fiduciary responsibility.

The two CPAs, who originally met while working at Arthur Andersen, bill the client based on their time. The pair also split the estate and corporate work for some other clients. “We still have an excellent relationship,” Turner reports. “And we rely on each other a lot. We talk every day, whether about practice management or technical issues, and we review returns prepared by each other. If one of us is out of town, the other will substitute.”

Turner has extended this cooperative network to include other CPAs as well. “Some practitioners don’t like to share information on their practices or their clients, but in our group nobody worries about sharing.” She credits this trust to the fact that they are all located in a large metropolitan area. “There are so many clients out there that we don’t feel threatened.”

As in the situation with her bank client, Turner has seen more clients interested in outsourcing accounting-related services, which could mean new opportunities for practitioners in regions with strong economies. “Back in the 1980s and early 1990s, a lot of clients moved their accounting and payroll functions in-house to cut costs. Now the economy is better here, so they’re outsourcing them again. For a while, I had very few accounting clients, but in the last year I’ve added several, plus a few payroll services, which I didn’t handle at all before. The clients no longer seem to mind paying for an outsider to help.” The bank client remains an unusual one, however, since most area bank trust departments do their own trust work. “We got this client when the bank started a new trust department 10 years ago and decided at the outset to outsource.”

STRATEGIC ALLIANCES
In another form of networking, Turner has used the traditional practice of referring clients to other professionals and taken it one step further. “I have chosen to remain a sole practitioner,” she explains. “I have decided not to hire a staff investment adviser or a retirement plan specialist.” But her clients, which include many closely held businesses and wealthy individuals, still need this type of expertise, so she has developed a strong strategic alliance with a local tax attorney, two insurance professionals and an investment adviser. The alliance members don’t function together as a group but work only with Turner when she needs their services. She chooses members she has worked with on other engagements or who have performed outstanding services for clients.

“When clients need those services, we work as a team,” she says. “It’s more structured than a referral network because I work exclusively with one person in each field rather than have, say, a list of three or four attorneys.” Each professional charges his or her own fees and, while Turner does not get a percentage of their fees, the other alliance members refer work to her regularly.

The alliance is relatively new and is constantly evolving. Members are now working on a more formalized agreement engagement letter to use between members and with alliance clients. Some thought is also going into developing various nontraditional fee arrangements for alliance engagements. “Anything that we can do to make the package more cohesive and user-friendly for clients is worth our efforts,” she says.

An alliance engagement can be initiated by any alliance member. Once that member determines the client’s needs, the other members are brought in to the engagement as needed for their services. For example, Turner may have a client who needs some basic estate planning. She enlists the alliance attorney to draft will changes or trust agreements. The insurance member may also be brought in to handle a life insurance policy. The package is assembled and presented to the client as a whole rather than as separate pieces from different professionals. Turner and perhaps one other member then meet with the client to explain all the plan details. The clients are pleased that they don’t have to contact three or four professionals on their own.

Clients have been delighted with the arrangement. “When I present the alliance to clients, I tell them it’s impossible for me to know all aspects of business and tax laws, so rather than sending them to seek expertise somewhere else, I have put together a group of people who will provide them with one-stop shopping.” Turner introduces the alliance either because of a request from a client or because she believes one needs expanded services. “Clients call anyway to ask who can help them with a problem,” she notes. “Now I can tell them that I can, because I work on a team with other professionals.” Because of the breadth of knowledge involved in the alliance, “clients feel they’re getting a well-rounded product with input from all the professionals. They probably feel we do a better job when working together.” Turner involves herself in all alliance engagements. She meets with the other professionals at the beginning and the end of their work and gets copies of work and correspondence.

The group is focused mainly on estate and financial planning, and she does not use this type of arrangement for referrals outside this area. If a client needed a litigation attorney, for example, she would offer a traditional referral to someone outside the alliance. She also gladly accommodates any client who wishes to use his or her own attorney or investment adviser.

Turner recommends that any practitioner looking to start an alliance should seek other professionals they know well and have worked with in the past. “You need to feel comfortable with the abilities of the professionals you are working with and who are providing services to your clients.”

KEEPING PACE
Although technology has vastly improved Turner’s practice, it has also raised client expectations. “Clients expect things immediately because of technology. You can’t say it’s in the mail. Everything is here instantaneously so they expect it to be returned almost instantaneously.” She has tried to educate clients about her limitations while still reassuring them about their importance to her practice.

She also works to keep up with changes in computers. “We know we’re not cutting edge, but we’re in the front corner. We’re trying to use the Internet for research and for transferring data to clients. We invest in top-of-the-line software so we don’t have to worry about mistakes. We replace our hardware every two to three years.”

In terms of other resources, Turner believes she made a mistake when she split with her partner and decided it would be a good time to cut overhead. “I ended up cutting too much personnel and office space. In the old firm, we had two partners and two assistants. I dropped down to one assistant who did not have a strong technical background. I had to do a lot more of the work and I became less efficient. Also, we’re really crowded into our office space now.” Just because a firm is getting smaller, she has concluded, doesn’t mean it can cut back on resources. Turner is planning to move to a larger office space and to hire an assistant with stronger technical abilities.

BE CHOOSY
Although Turner works to present a multifaceted approach to clients, her advice to other CPAs is to be selective about the work they perform, even when launching a new practice. “If you try to do all things for all clients, your work tends to suffer. Even in tax, pick one area and make that your niche for yourself.” When she and her former partner started their firm, “we accepted only clients we knew we would want to be working with long into the future.”

©1998 AICPA